U.S. housing collapse spreads overseas

Emma Linnane in her apartment in Dublin. Its value has declined by $100,000. (Derek Speirs for The New York Times)

DUBLIN: The collapse of the housing bubble in the United States is mutating into a global phenomenon, with real estate prices down from the Irish countryside and the Spanish coast to Baltic seaports and even in parts of India.

This synchronized global slowdown, which has become increasingly stark in recent months, is hobbling economic growth worldwide, affecting not just homes, but also jobs.

In Ireland, Spain, Britain and elsewhere, housing markets that soared over the past decade are falling back to earth. Experts predict that some countries, like Ireland, will face an even more wrenching adjustment than the United States, with the possibility that the downturn could turn into wholesale collapse.


To some extent, the world's problems are a result of American contagion. As home financing and credit tighten in response to the crisis that began in the U.S. subprime market, analysts worry that other countries could suffer the mortgage defaults and foreclosures that have afflicted California, Florida and other states.

Citing the far-flung reverberations from the American housing bust and credit squeeze, the International Monetary Fund cut its forecast Wednesday for global economic growth this year and warned that the malaise could extend into 2009.



"The problems in the U.S. are being transmitted to Europe," said Michael Ball, professor of urban and property economics at the University of Reading in England, who studies housing prices. "What's happening now is an awful lot more grief than we expected."

For countries like Ireland, where prices were even more inflated than in the United States, it has been a painful education, as homeowners learn the American vocabulary of misery.

"We know we're already in negative equity," said Emma Linnane, a 31-year-old university administrator. She bought a cozy, one-bedroom apartment in the Dublin suburbs with her fiancé, Paul Colgan, in May 2006, at the peak of the market. They paid €365,000, or $575,000 - at least $100,000 more than it would fetch today.

"I sometimes get shivers thinking about it," Linnane said, "but I'll let the reality hit me when I go to sell it."

That reality is spreading. Once-sizzling housing markets in Eastern Europe are cooling rapidly, as nervous West Europeans stop buying investment properties in Warsaw, Estonia and other former real estate Klondikes.

Even further east, in India and southern China, prices are no longer climbing. With stock markets down sharply after reaching heady levels, people do not have as much cash to plow into property. Sales of apartments in Hong Kong, a recently hyperactive market, have slowed, with prices for mass-market flats starting to drop.

In New Delhi and other parts of northern India, prices have fallen 20 percent over the past year. Sanjay Dutt, an executive director in the Mumbai office of Cushman & Wakefield, the real estate firm, described it as an erosion of confidence.

Much of the retrenchment can be attributed to the basic laws of gravity: What goes up must come down. With low interest rates helping to inflate housing bubbles in many countries, economists said, the confluence of falling prices was predictable, if unsettling.

How this will affect the broader fortunes of countries differs radically. Ireland and Spain are shuddering, while growth in India this year is expected to slow only a percentage point or so from its recent pace of 9 percent. In China, the effect may be even more limited.

"If the Fed moves rates, and the People's Bank of China follows, it doesn't mean much to a peasant in China," said Thomas Mayer, the chief European economist at Deutsche Bank in London. "But it means a lot for the newly rich entrepreneur in Shanghai, who can load up on credit and buy a fancy apartment."

This is not the first housing downturn to cross borders, Mayer said, but its reverberations have been amplified by financial markets. When faulty U.S. mortgages ended up on the books of banks around the world, the problems of the United States aggravated global problems.

Consider Britain, which had one of the most robust European housing markets, with less of an oversupply than Ireland or Spain.Then last summer came the subprime crisis across the Atlantic.

By September, there was a run on a British lender, Northern Rock. A month later, mortgage approvals dropped 31 percent, compared with the number a year earlier, and by November, real estate brokers began reporting the first declines in housing prices. In March, average prices fell 2.5 percent, the largest monthly decline since 1992, according to HBOS, a mortgage lender.




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